Archive for the 'Economics' Category

I stress that the allocation of space to quadrants referred to in the previous blog is an abstraction from reality. In practice most things most people will do most of the time will have some elements of more than one area of need contained within them. So eating in isolation may just be material satisfaction (although even then some intellectual curiosity about the food may arise). As soon as eating becomes a communal meal it has an emotional element too. Some meals are ritualistic: they are incorporated into the process of searching for meaning. I think my point is clear: don’t assume we single task. We never do, but it makes the diagram easier to think about things if drawn the way I have. This is what modelling requires.

I’m sure some will wish to challenge the choice of quadrants: all I can say is that based on much reading over many years in many cultural, faith and wisdom traditions these four seem to be recurring themes. They fit Maslow’s hierarchy of needs, for example (and don’t worry that he has five such needs and there are only four quadrants: this model will develop).

The circle can by itself represent these ideas but that is not enough to take us very far forward. So I next recognised that each of us has real needs, and each of us has at the same time the potential to meet these needs in others. There are four of these needs. They split the circle like this:

The axes are deliberately diagonal: I hated the idea that we might be back on the conventional economist’s graph already. We’re not. Each of these quadrants has equal positive value for example, but by using horizontal and vertical axes this might not be obvious.

Each quadrant represents a type of human need. One is for material well being. We all need air, water, food, shelter, clothing, warmth, and more besides to survive. In our modern world we believe we need much more than that.

Another is for emotion. Just start with the needs inherent in a person’s relationship with their mother and move on from there: there is no one who can survive as a healthy human being without emotional relationships.

Next there is a need for intellectual development. We all need language. We must learn to provide for ourselves within the society in which we live. We are curious.

And, perhaps most contentiously (although it seems to me absolutely unambiguously), a person has a need for meaning. I call that their purpose. It could be called a spiritual need. I would be happy with that, but know that might alienate some, and I think purpose, in any event more encompassing. Either was, in I stress that it is definitely not religion. This is the quest for the answer to the question ‘why am I here?’ Unless that question is addressed it seems pretty unlikely to me that a person can achieve their potential.

You can lay them on the diagram like this (using M = Material, E = Emotion, I = Intellectual and P – Purpose):

The allocation of the quadrants is arbitrary. It’s just the one I use. Another would do just as well.

The unconstrained two axis graph cannot adequately describe the world we live in. It implies endless possibility. That does not exist.

Suppose for a moment we view ourselves as constrained in whatever we do. How might we represent that?

I would draw a circle around myself:

You could put a dot in the middle if you like to represent the centre of your being. I haven’t.

But what is clear from a diagram such as this is that the human being is constrained. There is a limit to their potential. This comes from limited ability, limited resources within the world, limited time (we all die, after all), constraints others impose on us, and so on.

It need not depress us. It seems apparent that human beings have, do and will continue to live goods lives in constrained circumstances. The question that economics needs to answer is how that is possible, and how the process of exchange enhances this possibility.

The two axis graph is used as the basis of explanation when beginning to teach current approaches to economics.

The implication of this diagram is clear: unlimited possibilities exist in the northeast direction to which the arrow points. The further you move in that direction the better it is implied your life will be.

Long ago I realised that this is not true. The life of unlimited consumption which this diagram suggests possible is not attainable.

The earth is constrained. We can only consume its resources without limit now if we ignore the consequences for the future.

We are constrained. Our lives are finite. We want to so much more than the consumption which, inevitably and without comment, these graphs suggest desirable.

When I was 19 I realised that a graph like this could never explain the complexity of the world in which I lived. By the time I was 21 I had learned enough economics to know that others shared the opinion. Despite that thirty years later the basic philosophy that more is better that is implicit in that arrow heading off to the North East in this graph remains the absolute bedrock and foundation of our economic thinking.

This graph has a lot to answer for. I have concluded that it is beyond redemption. We cannot build a new economics unless we can build an explanation of the world that can be visually explained in another way.

A word of explanation concerning my reasons for creating this blog is needed.

I already have a blog, with a significant number of readers. That is the Tax Research blog, and as its name suggests, it’s mainly about tax, and how to create tax justice for ordinary people in the UK and developing countries: justice they are denied at present because of the existence of tax havens and the abusive behaviour of multinational corporations and the lawyers, bankers and accountants who provide them with tax avoidance services.

This blog is about something different. It’s about economics: a new type of economics, and in particular a new economic theory. They audience may not be the same. And in any event, since this blog is about the production of a single idea, longitudinally over time, it needs to have space dedicated to it, and it alone.

The idea I want to explore is a simple one. It is that we humans need to give up the idea that we maximise our happiness, wealth or income, all of which ideas are implicit in the economics which governs behaviour in our society. I suggest that we need to practice the concept of having enough instead, but that in the process we will in fact be better off. If I could explain why in a sentence or two I would; it would save me a lot of time. The fact is that, at least as yet, I can’t. Hence this blog.

So why do this now? And why do I think it’s my job to do this? The questions are linked. The answer requires a little background information, but since I like to know who is putting ideas to me (which means I thoroughly dislike the anonymity which characterises much of the blogosphere), please excuse some personal explanations for a moment.

I am 51 when writing this. I trained as an economist at university. Except I’d read E F Schumacher’s ‘Small is Beautiful‘ before I went. And E J Mishan’s The Cost of Economic Growth. And quite a bit of Keynes. You could say I had a sad sixth form, but I’d disagree: I was a nascent green in the making. So university economics was a bit of a shock. Within a term I’d realised that it did not offer an explanation of what happened in the world. It was quite clear to me that people did not, and could not, behave in the ways described by those teaching economic theories to me. Very obviously this ‘positive economics’ I was being taught was in fact highly subjective, and sought to impose a system of behaviour, not describe one.

The result was a crisis: I switched to joint honours with accountancy but stuck to the course as a whole; it provided too many opportunities to be editor of the university newspaper, partake in politics and much more besides to forego. So I graduated as an economist with some accountancy on the side, and became a chartered accountant.

Then at 25 I had to decide, which was it to be: accountancy or creating a new economics? I registered for a PhD. I went to the first TOES – ‘The Other economic Summit’ progenitor of much that has happened in this area – and I started a firm of accountants at the age of 26. Accountancy won. I’m glad it did. My ideas simply weren’t good enough then. I needed real world experience to let them develop.

But I never ignored my interest in a new economics. I’ve been working on it for twenty five years now, off and on, but pretty much on the same course throughout. This blog will reflect, and I hope develop, that thinking.

But why now? Partly because I’m 51. Half a life time thinking about this is long enough. Now it is time to give this stuff an airing.

Partly because I’ve found that I have a voice: my work on tax has given me that.

Partly because it is very obvious that there is a need for a new theory of economics. As Tim Jackson said in his introduction to his report published in March 2009 for the Sustainable Development Commission :

What we still miss from this is a viable macroeconomic model in which these conditions can be achieved. There is no clear model for achieving economic stability without consumption growth. Nor do any of the existing models account fully for the dependency of the macro-economy on ecological variables such as resources and emissions. In short there is no macro-economics for sustainability and there is an urgent need for one.

Is what follows that model? I’m not the person to answer that. It’s just my contribution to debate, and as I’ve discovered from my work on tax justice, making such contributions can both be worthwhile, and can change things. If for the better then making the effort is worthwhile.

Mainly though I am writing this because I feel I have little option but do so. The choices I made, the life I have lived will not be available to my sons. James and Thomas are 8 and 6 (or nearly seven, as I am reminded, often). I was brought up in a world where most believed there were no constraints. They were wrong. Very wrong. We are very, very constrained. But we have still to work out how to react to that truth. That model of economics I was taught at university is the main impediment to that absolutely essential process of change. It still says that growth is good, and that there is no alternative.

I believe there is an alternative. I have to believe that. If I there is not then I can’t imagine the problems that might be faced by people around the world as my natural lifespan might draw to a close, and what inheritance I might leave to my sons, and all others of their age.

So this blog is really for James and Thomas, and all of their generation.

But as with just about everything I do in life it’s only possible because of the love, support and encouragement I receive from Jacqueline, my wife. So it’s for her too, with thanks.

And what is the aim? Simply this: to create a new economic model that can be taught as a system, that can replace the dire view of life that is presented in schools and on undergraduate university courses almost everywhere as if it were the truth about how people and businesses operate: that they really do profit maximise in a perfect and unconstrained world in which the gifts of nature are free and boundless. Let me assure you: I know that economists have tried to overcome the constraints these assumptions impose in higher level work. But that really does not matter. It is the basics that are taught in year one that people remember of their economics, and that is that life is all about profit and that unlimited growth is good. The aim of this blog is to help change that. It’s a big task. When I decide I’ve reached the end of the tale it will be for you to decide if I have succeeded. I can but try.